Life After Bankruptcy | How to Recover After Bankruptcy
Running Time: 7 minutes
Once it’s all behind you, then what?
In this video, I want to focus on the aftermath of bankruptcy. You won’t get a credit offer for at least another year, and when you do, it will be some 30% APR garbage with yearly fees to boot. But I don’t want to focus on that, because this video is about starting a new life, not racking up new debt all over again.
What happens after bankruptcy?
Now that you’ve made it out of the storm unscathed (sort of), you’re not totally off the hook just yet. Now, you’re actually faced with the possibility of rebuilding everything from scratch, because you’ve wiped your old slate clean. However, the responsibility of trying to restore your credit and financial stability can be overwhelming despite the apparent freedom. The fact that you filed for bankruptcy to begin with, already means that your future credit score is destroyed, giving you a whole mess of problems the next time you want to achieve your long-term financial goals.
This is because being approved for a credit card or personal loan involves a lot more than just your number score. After bankruptcy, it’s a lot more about what negative items are part of the report. You will obviously have the bankruptcy itself as part of your public record, but you will also have all the creditors you haven’t been paying this whole time. You can dispute then, and some will get to be removed. But unless you can get them all off, these negatives will show if you ever go to try and get something new. Unless you have a decade to spare, getting a clean report seems almost impossible to me.
After you have gone through the bankruptcy process, the last thing that happens is a Bankruptcy Discharge. This means that the required duties in the bankruptcy have already been fulfilled. You no longer hold any debt liability, and you will receive a “final accounting” called a Statement of Receipts and Disbursements. This will be reviewed and approved by the Office of the Superintendent of Bankruptcy for full transparency.
Throughout your bankruptcy, you will receive the following:
- A Notice of Bankruptcy, which indicates the official date of your bankruptcy, and a list of your creditors
- A Discharge Certificate, which officially states that you are now free from the responsibility of paying old debt
- A Statement of Receipts and Disbursements, which is sent by the Trustee that details key administrative tasks completed and creditors handled during the process
How Do You Move On From The Bankruptcy?
The first thing you need to do is to keep all of your documents regarding the bankruptcy secure. This will come in handy when you need a loan or when you need to make a big purchase in the future. For example, I wanted to buy a new house, so I needed to show the loan officer my bankruptcy and foreclosure paperwork.
You will also need to start rebuilding your credit by cleaning up the mess on your credit report. You can hire an agency whose job it is to get the items removed. They won’t be able to get everything, although they will be happy to keep collecting your money while giving the illusion they are still working on it.
Don’t get yourself a credit card. Not only will you be denied for most, the ones that will accept you will have terrible terms. You may also end up falling into the trap of endless debt yet again. Instead, try to manage your cash flow better. I would suggest getting into the habit of using the Envelope System to manage your income and expenses. I used to be an absolute mess, but once I stopped all the negative habits, and began giving every dollar a job, I stopped overspending on things we didn’t need, like dining out all weekend long.
After filing for bankruptcy, you won’t be able to declare bankruptcy again for another seven years for a Chapter 13 and ten years for Chapter 7. Because of the mark on your record, you’ll also likely have to pay sky-high interest rates. It’s important then to shop around when it comes to who you’re borrowing from.
By the way, keep in mind that your credit score just took a huge hit, so make sure that you really are ready to borrow money before you take out new loans. The best thing you can do is run the numbers with regard to your budgeting plan. Maintain a budget, a job, and a home. Pay your bills on time. Start an emergency budget, and steer clear of solicitations who will offer you tons of too-good-to-be-true deals of big loans with low interest rates. This will only tempt you to fall back into old habits, so don’t let yourself get carried away. If you do need to get a credit card, get a secured credit card that’s backed by a deposit you pay. This should help you mend your credit at least until you’re eligible for a better and lower interest card.
Other things to note after bankruptcy
- You will likely have to wait two years after a bankruptcy before you can apply for a loan. If you’re thinking of buying a house, you may even have to deal with a four-year ban.
- You may be able to get a car loan within a year or two of your discharge.
- Your Licensed Insolvency Trustee will file pre- and post-bankruptcy income tax returns. In the years after you file your bankruptcy, you will need to file your tax returns as usual and pay for balances due.
- You have the option of asking someone else to co-sign a new debt for you. A friend or a family member may be willing to co-sign a credit card or loan application if they have a good credit history. However, it’s also a big risk for them as they’ll essentially be putting their credit reputation on the line for you. If you don’t pay, they may have to face limits on their own personal borrowing as well.
- You have the option of becoming an authorized user on the credit card of a friend or family member. This is a good option to take if you need a credit card without the ultimate responsibility for repaying debt. It won’t affect your credit score—just make sure that you do pay what you owe if you don’t want to hurt your relationship with the principal credit card owner.
- Despite the mark on your credit report, it does look better to wipe your slate clean rather than have $20,000 or $30,000 in credit that you’re unable to pay.
- After filing for bankruptcy, an “automatic stay” should keep your creditors from pestering you and harassing you for your payments.
Remember that while it may seem challenging to move on with your life after bankruptcy, the fallout doesn’t actually look that bad. The most important thing you need to do is to make a strict budget and stick to it. You should always keep in mind how difficult life was before your bankruptcy, and you have to swear never to go back to those old habits again. Now that you have a clean slate, it’s the perfect opportunity to be more sensible with your finances—it’s not an excuse to indulge in unnecessary expenses just because your old debts are gone. Remember: bankruptcy should always be a last resort, and you only get one do-over. Use it wisely.